Affine Multiple Yield Curve Models

39 Pages Posted: 28 Dec 2016 Last revised: 16 Apr 2018

See all articles by Christa Cuchiero

Christa Cuchiero

Independent

Claudio Fontana

Université Paris VII Denis Diderot

Alessandro Gnoatto

University of Verona - Department of Economics

Date Written: December 10, 2017

Abstract

We provide a general and tractable framework under which all multiple yield curve modeling approaches based on affine processes, be it short rate, Libor market, or HJM modeling, can be consolidated. We model a numéraire process and multiplicative spreads between Libor rates and simply compounded OIS rates as functions of an underlying affine process. Besides allowing for ordered spreads and an exact fit to the initially observed term structures, this general framework leads to tractable valuation formulas for caplets and swaptions and embeds all existing multi-curve affine models. The proposed approach also gives rise to new developments, such as a short rate type model driven by a Wishart process, for which we derive a closed-form pricing formula for caplets. The empirical performance of two specifications of our framework is illustrated by calibration to market data.

Keywords: Multiple yield curves, Libor rate, forward rate agreement, multiplicative spread, affine processes

JEL Classification: E43, G12

Suggested Citation

Cuchiero, Christa and Fontana, Claudio and Gnoatto, Alessandro, Affine Multiple Yield Curve Models (December 10, 2017). Available at SSRN: https://ssrn.com/abstract=2890498 or http://dx.doi.org/10.2139/ssrn.2890498

Christa Cuchiero

Independent ( email )

No Address Available

Claudio Fontana

Université Paris VII Denis Diderot ( email )

avenue de France
Paris, 75205
France

Alessandro Gnoatto (Contact Author)

University of Verona - Department of Economics ( email )

Via dell'Artigliere, 8
37129 Verona
Italy

Register to save articles to
your library

Register

Paper statistics

Downloads
102
Abstract Views
648
rank
263,576
PlumX Metrics